Final answer:
Utility is the term economists use to describe a person's level of satisfaction or happiness with their choices. It refers to the amount of pleasure or satisfaction a person derives from consuming goods and services. The law of diminishing marginal utility explains that as a person consumes more of a good, the additional utility from each additional unit of the good declines.
Step-by-step explanation:
Utility, in the field of economics, refers to a person's level of satisfaction or happiness with their choices. It is the term economists use to describe the amount of pleasure or satisfaction a person derives from consuming goods and services. For example, when José is choosing a combination of goods, he wants to select the combination that will provide him with the greatest utility, or the highest level of satisfaction.
The concept of utility is subjective and varies from person to person. Economists assume that the more of a good or service a person consumes, the more utility they obtain. However, the law of diminishing marginal utility states that as a person receives more of a good, the additional utility from each additional unit of the good declines. In other words, the first unit of a good brings more satisfaction than the subsequent units.
For José, maximizing utility means selecting a combination of goods that will give him the most satisfaction. By understanding the concept of utility, economists can analyze individual choices and the overall impact on the economy.